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September 23, 2008

SemGroup Gets More Funds

by Sam Savage

By ROD WALTON

Read previous stories and court filings about SemGroup.

tulsaworld.com/semgroup

A bankruptcy judge approves the final $25 million of $175 million in emergency financing.

SemGroup LP can receive the final $25 million of its $175 million in emergency financing to help the bankrupt Tulsa energy company stay in business while it sells off assets to pay creditors, a Delaware judge ruled Wednesday evening.

"The court granted critical motions that allow us to pursue our reorganization more effectively and increase the probability of a successful restructuring," SemGroup's spokesman Tom Becker said.

U.S. Bankruptcy Judge Brendan L. Shannon also approved part of SemGroup's request to pay up to $15.9 million in bonuses to reward "key employees" who stay with the company working on everyday duties and tasks related to the Chapter 11 bankruptcy reorganization, according to reports. A final part of that incentive plan dealing with "insider" employees, such as executives, will be decided at a Sept. 29 hearing in Wilmington, Del.

SemGroup originally requested up to $250 million in "debtor in possession" financing but opted for the lesser amount. Shannon previously approved the use of $150 million in DIP funds, which the company uses for letters of credit with vendors, suppliers and other partners.

Part of the DIP credit agreement, however, allows SemGroup to use about $70 million for "hedging purposes" in buying or selling oil. The company filed for bankruptcy after revealing that it lost $2.4 billion in failed oil futures trading positions ending this summer.

SemGroup's spokesman Lance Ignon said the planned hedging -- using various selling and buying practices to minimize risk in a volatile futures market -- would be done according to a protocol approved by DIP lenders, the court and other creditors.

"The creditors committee strongly favors allowing the company to hedge again, albeit under strict guidelines," Ignon said. "It's an essential tool for any energy business, and to not have that ability places the company at a severe disadvantage."

SemGroup filed for bankruptcy July 22 after revelations of its futures trading practices came to public attention. The company also owes at least $2.5 billion to other creditors and as much as $1 billion to suppliers for oil or asphalt and other goods it bought on credit prior to the bankruptcy.

Some creditors have alleged that SemGroup engaged in "risky" and "unauthorized" speculation on the oil futures market. An examiner for the U.S. Trustee's Office will investigate the trading strategies, several insider transactions that generated more than $500 million and the use of other loan funds, according to reports.

Tom Kivisto, Gregory Wallace and Kevin Foxx co-founded SemGroup LP in 2000. The energy company quickly bought other oil, pipeline and asphalt operations to become one of the largest private firms in the nation by 2006.

Kivisto was replaced as CEO by Terry Ronan in July, not long after the liquidity crisis became publicly known. His wholly owned trading company, WestBack Holdings, also accounts for about $290 million of SemGroup's trading losses.

Wallace is reportedly still with SemGroup LP, while Foxx is CEO of the publicly traded SemGroup Energy Partners. SemGroup LP spun off some of its oil and asphalt storage, terminal and pipeline assets last year to take SemGroup Energy Partners, also known as SGLP, public in a stock offering.

Some shareholders have filed lawsuits alleging that those stock offerings were used to generate income to cover SemGroup's margin losses on futures trading. The lawsuits also alleged that company officials, including Kivisto, Foxx and Wallace, did not tell SGLP investors about the debt problems at the private parent firm, according to reports.

SemGroup Energy Partners is not a debtor in the bankruptcy case, but the company has struggled because it previously gained more than $100 million in annual revenues through fee-based storage and transport services for the private SemGroup, according to reports. The value of SGLP fell to $7.10 per unit Wednesday, the lowest closing price in the 14-month history of the public company.